The Lloyd's of London insurance market claimed a significant legal victory yesterday when a High Court judge upheld the principle of the "pay now, sue later" clause contained in agreements between Lloyd's agents and its names.

The ruling, which will be the subject of an appeal, was described by Lloyd's as "significant" and "one which will produce positive benefits for the society and its members".

The test case was brought by Lloyd's managing agent, Marchant and Eliot Underwriting, over two unpaid cash calls of pounds 6,000 by Dr Andrew Higgins, a member of its syndicates. Mr Justice Rix delivered his 58-page judgment yesterday.

Dr Higgins's defence, based on Article 85 of the Treaty of Rome, which prohibits anti-competitive practices, argued that the "pay now, sue later" clause was anti-competitive. The judge said he could not understand how the obligation to pay outstanding cash calls could be said to distort competition. Lloyd's could not operate without such a concept; rather than giving Lloyd's a competitive edge it simply allowed it to compete on a level playing field with insurance companies.

Lloyd's said the effect of the decision was to enable underwriting agents to obtain judgments against members who do not respond to cash calls and writs requiring payment. A spokesman said he hoped that members would see the judgment for what it was and that "those who fall in the category of won't rather than can't pay will pay up".

Philip Holden, head of Lloyd's financial recovery department, said: "The judgment will enable agents in the market to take positive action to recover many outstanding cash calls. It also represents an unambiguous warning to those who won't pay their Lloyd's losses. I hope sincerely that Lloyd's can begin discussions with those members and, as a result, avoid costly and time-consuming litigation."

Susan Dingwall, partner and head of Dibbs Lupton Broomhead's insurance and reinsurance group in London, who acted for Marchant & Eliot, said: "This is a significant ruling, which will be welcomed not only by the Lloyd's agency community but also by those names who have been paying their losses, and by potential investors in the Lloyd's market."

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